It turned out that Aref was already being watched by the FBI, for reasons that are somewhat bizarre.

Earlier that year, on a battlefield in Iraq, American soldiers searching dead Iraqi fighters came across a scrap of paper bearing Aref's name, a phone number, and an Arabic word that the Americans mistranslated as "commander."

Actually, the word was Arabic for "brother," a common term used by Muslims the way Americans use "dude" or "buddy."

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Aref is a well-educated Iraqi Kurd who had fled the regime of Saddam Hussein and spent several years in Syria before gaining status as a United Nations–sponsored refugee, which allowed him to come to the United States in 1999. Federal investigators say that while in Syria, Aref befriended a man who later formed a terrorist organization. But Aref was not a part of that group himself. The fact that his phone number was found on a soldier, however, understandably made the FBI curious about his connections.

By 2003, Aref was a trusted friend to Hossain, and he agreed to witness the loan to Malik.

Aref's attorney, Terence Kindlon, points out that the imam's participation was minimal: He simply witnessed a transfer of cash—he wrote out receipts for it and gave each of the men a copy.

Hossain and Aref were arrested on August 4, 2004, with the same sort of pronouncements of national salvation that would follow the Newburgh arrests.

Then-Governor George Pataki hailed it as a victory in the War on Terror. Albany mayor Jerry Jennings reassured the public that the government was watching: "We want people to feel good about what happened today because we are on top of it. We are being proactive . . . to make sure our communities are safe."

In the subsequent trial, neither Aref nor Hossain was ever linked to any known terror group.

Shamshad Ahmad believes he may have been the target of Malik's first attempt at a terror case.

Like Aref, he's an imam at Masjid Al-Salam, the Albany mosque. He says Malik contacted him in September 2002 about providing shelter to a battered Pakistani woman and her children. But Ahmad was immediately skeptical, and cut all association with him.

Other members of Ahmad's mosque told him that Malik had approached them with various illegal schemes, apparently trolling for possible targets. In July 2003, he found a potential target in Hossain. (Since the arrest and trial of Hossain and Aref, Ahmad has written a book about the case.)

Ahmad says that Hossain was extremely vulnerable to Malik for three reasons: He was desperate for money to keep his pizzeria afloat; he was a religious zealot; and he was prone to rambling on about religion and politics. As in Newburgh, Malik gave gifts to his target—in this case, toy helicopters for Hossain's children.

The two men met more than 50 times over the next year, resulting in 50 hours of government surveillance tapes.

FBI protocol called for Malik to speak with his FBI handler, Tim Coll, both before and after each of his meetings with Hossain. Memos were then prepared for FBI files to detail each meeting. These memos are known as "302s" in FBI parlance, and provide the agency with a developing summary of evidence that will be used later at trial.

Time and again, however, the material in the 302s in the Albany case were very different from the actual transcripts of recordings that the FBI secretly made of conversations between Malik and his targets.

While Hossain and Aref did make statements that could be construed as anti-American, they were also resistant when Malik tried, repeatedly, to get them to make statements supporting violence against Americans.

"Malik would depict Hossain as anti-American [in the 302s], while the actual translations done several months later showed that Hossain was actually espousing his respect for the United States and criticizing the terrorists," Ahmad writes.

The Voice compared the FBI's 302 memos to actual transcripts of conversations between Malik and Hossain, and found many discrepancies:

• An August 7, 2003, meeting.The 302 memo: Malik arranges to give Hossein's brother the answers to a driver's license test for a $75 fee. The transcript: This meeting actually contains a long discussion on politics and religion. Hossain describes himself as a law-abiding citizen. "I never harming anybody," he says. "People like me, society get benefit." When talk turns to Bin Laden, Hossain notes that suicide is against the Koran. "It is totally wrong—there is no right to suicide yourself," he says. "If someone [commits] suicide, it is haraam [a wrong]. They cannot enter Paradise." The transcript also shows that Hossain criticized the World Trade Center attack as "bad, very bad." He also says, "We should have a good relationship with unbelievers, then because of our goodness, Islam will spread."

• September 30.The 302 memo: The two men meet at Hossain's pizzeria. Malik reports that "Hossain stated it was OK to kill nonbelievers in the name of Allah." The transcript: "Jihad is seeking knowledge," Hossain tells Malik, according to the translation. "Get up early in the morning while the sleep is overwhelming you, do brush, wash up, and go to the morning prayer." At another point, Malik says, "Infidels are killing Muslims left and right. I want to fight with them and teach them a lesson." But Hossain doesn't take the bait: "Muslims are suffering because they are not following the religion, the teaching of the Prophet."